LNG World Shipping

Gulf LNG producers poised for new growth spurt

Qatar has been in the vanguard of Middle East LNG production for two decades and is ready to lead the region in a new expansion phase

Thanks to Qatar’s commitment to monetising its rich gas resources through LNG production, the Arabian Peninsula and Gulf region is a major powerhouse in the global LNG marketplace.

The Gulf states produce around 94 million tonnes per annum (mta) of LNG, or about 32% of the global total, and just under the volume turned out by the Asian export terminals.

While the Middle East share of world LNG output is set to decline further in the face of growing Australian production over the next two years, Qatar is planning a major expansion project that would boost its exports by 30% and redress the Gulf/Asia supply balance.

In terms of output volumes Qatar has no rivals in the Gulf. Although long-serving, the LNG export terminals in Oman and Abu Dhabi produce only a fraction of what their near neighbor turns out.

The region has lost the contribution made by Yemen LNG in recent years, following the closure of the plant due to the threat of terrorist attacks in that war-torn country. However, Iran could soon become a new member of the LNG exporters club, after many years of trying.

Qatar at the forefront

Qatar remains the leading force in LNG not only in the Middle East but also globally. Although Australia is catching up fast, Qatar remains the world’s top LNG exporter.

Loadings in 2017, at around 78M tonnes, accounted for 26.6% of the global trade in the product. Qatar has also been exporting gas via the Dolphin pipeline to its neighbours Oman and the United Arab Emirates for the past 10 years.

Qatar’s LNG production is concentrated at the massive Ras Laffan port and industrial complex in the north of the country. The 14 trains at the site have been operating at or slightly above their nameplate capacity of 77 mta since coming onstream at various stages over the past two decades and now fill, on average, three LNG carriers per day.

Core to Qatar export shipments is the fleet of Qatar Gas Transport Co (Nakilat), a company established in 2004 to deliver cargoes produced by Qatargas and RasGas, the operators of the Ras Laffan trains, to customers worldwide under 25-year charters.

Nakilat’s fleet of 65 wholly or part-owned LNG carriers includes 31 Q-flex ships of 216,000 m³ and 14 Q-max vessels of 266,000 m³. Designed to optimise the transport economics of Qatari exports, the Q-flex and Q-max ships are the largest LNGCs ever built.

While new Australian projects are set to increase that country’s export capacity to 85 mta by 2020, Qatar is already taking steps to ensure its return to the top spot in LNG exports by early in the next decade. In June 2017 Qatar Petroleum (QP) contracted Chiyoda Corp to study the feasibility of expanding the Ras Laffan export capacity by 30%, to 100 mta, primarily through the debottlenecking of existing liquefaction facilities.

Qatar has several factors in its favour in the drive to expand LNG production capacity. These include having the existing terminal infrastructure in place; access to cheap gas through the reserves of the country’s vast North field; its geographical location halfway between the main markets of Asia and the Atlantic Basin; and a high level of foreign investor interest in the scheme.

In January 2018 QP completed the integration of Qatargas and RasGas into a new, single Qatargas operation. Aside from the cost savings to be achieved by the amalgamation, Nakilat will now only have one charterer to deal with.

Oman and Abu Dhabi

Oman is the Middle East’s second-largest LNG exporter. The 8.12M tonnes shipped to overseas customers in 2016 meant Oman LNG’s three trains at its Qalhat terminal near Sur were operating at around 80% capacity.

The reserves in some of the gas fields feeding the plant have been in decline in recent years and Oman has been seeking to reverse the trend. Production from the
large new onshore Khazzan field came onstream in September 2017 and immediately began to buoy the Qalhat terminal’s LNG output. Oman LNG reports that cargo loadings are now back up to the facility’s nameplate capacity of 10.4 mta.

Oman has a core fleet of eight LNGCs. Oman Shipping Company holds a controlling stake in seven of the vessels and a 40% share in the eighth. Mitsui OSK Lines part-owns all but two of the ships.

Oman LNG added to its long-term customer base in January 2018 when it signed a deal with BP covering the sale of 1.1 mta of LNG for seven years. Cargoes will be loaded at Qalhat on a free-on-board basis.

Abu Dhabi is the third-largest LNG exporter in the Middle East, since Yemen LNG’s 7.2 mta plant at Balhaf has been shut down due to the political turmoil in that country. Abu Dhabi has been loading LNG at its Das Island terminal for 41 years.

The United Arab Emirate loaded 5.86M tonnes in 2016, marginally up on the previous year. Approximately 75% of the volume goes to the Japanese terminals of Jera, it sole long-term customer. Abu Dhabi’s National Gas Shipping Co Ltd employs a fleet of eight 136,000 m³ spherical tank LNGCs built in the mid-1990s to transport the Jera cargoes.

In August 2016 Abu Dhabi added the ability to import LNG to its energy mix when the 138,000 m³ floating storage and regasification unit Excelerate was positioned in Ruwais, the country’s main port. Imports help meet the emirate’s growing domestic gas needs and enable a continuation of revenue-earning exports of oil and gas. Ruwais cargoes to date have been locally sourced from Das Island.

Jera, Abu Dhabi’s main LNG customer, is a joint venture established in 2015 by Chubu Electric Power and Tokyo Electric Power to procure fuel supplies. The new group’s combined purchases of 35 mta make Jera the world’s biggest buyer of LNG and give it significant sway in the market.

Jera’s existing 25-year contract with Abu Dhabi’s Adnoc LNG covers the delivery of 4.3 mta on a delivered ex-ship basis. However, this purchase agreement expires in March 2019, and Jera, in its current contract negotiations with Abu Dhabi, is pushing for much more flexible terms.

Jera would like to renew the sale and purchase agreement but at reduced volumes, under a shorter time-scale and with more relaxed provisions regarding cargo discharge ports than previously negotiated.

Jera is targeting a renewal of its Abu Dhabi arrangement on the basis of a volume of 0.5-1.0 mta of Das Island LNG for three years, with a buyer’s option to extend for another two years.

Iran pursues club membership

Iran, possessor of the world’s second-largest reserves of natural gas after Russia, has aspired to mount an LNG export project for five decades. However, geopolitical tensions, lack of investment and a burgeoning domestic demand for gas have combined to stymie the country’s plans at every turn.

There are signs, however, that a breakthrough is about to be made, albeit on a modest scale. In October 2017 National Iranian Oil Co signed a preliminary contract with IFLNG covering the liquefaction of gas currently flared during crude oil extraction operations near Kharg Island.

IFLNG is a joint venture between Helma Vantage, a Norwegian oil and gas company, and Iran’s Kharg Gas Refining Co. The deal covers the production of 0.5 mta of LNG for 20 years and talks have been underway with Exmar about the possible charter of the Belgian gas carrier operator’s floating LNG production vessel, Caribbean FLNG, for the work.

Conditional on a successful conclusion to the final negotiations, the current availability of Caribbean FLNG means that Iran could finally achieve its goal of joining the LNG exporters club by the end of 2018.